The Securities Appellate Tribunal (“SAT”) in the case of Shruti Vora v. Securities and Exchange Board of India, set aside the penalty imposed by the Securities and Exchange Board of India (“SEBI”) for forwarding certain information regarding six companies that were held by SEBI to be Unpublished Price Sensitive Information (“UPSI”). In this case, SAT had to consider whether a “forwarded as received” WhatsApp message circulated on a group regarding quarterly financial results of a company closely matching with the vital statistics, shortly after the in-house finalization of the financial results by the company and some time before the publication/ disclosure of the same by the concerned company, would amount to UPSI under the provisions of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”).
SEBI had held such impugned messages to be UPSI based (i) on the proximity of the messages from the finalization of the financial results, and (ii) the resemblance between the figures in the messages and in the financial results. However, the appellants contended that the practice of making estimate ahead of the disclosure of the financial result is in vogue in the market, and that the concept of “Heard on Street” (“HoS”) is a common practice within traders, market analyst, institutional investors, etc., where unsubstantiated information is widely shared.
SAT observed that SEBI had not been able to discover the source of the messages and further that while it had mined hundreds of similar messages from the devices of appellants, the messages matched with the exact figures of the financial results only in the instant six cases.
In view of the above, SAT held that:
i. information can be branded as an UPSI only when the person getting the information had a knowledge that it was UPSI, and
ii. the respondents failed to prove any preponderance of probabilities that the impugned messages were UPSI, that the appellants knew that it was UPSI and with the said knowledge, they had passed the said information to other parties.
Accordingly, SEBI allowed the appeal and set aside the penalty imposed by SEBI.
Please find attached a copy of the SAT order dated March 22, 2021.
This update has been contributed by Suchita Ambadipudi (Partner) and Smriti Tripathi (Associate).
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